US is No.1 country for UK small businesses to trade with over next three years, EU to remain most important trading bloc

Press Releases 22 Jan 2020

With the UK set to embark on a new era of global trade negotiations for the first time in living memory, the importance of minimising friction in trade and having zero tariffs and quotas is more critical than ever to small businesses across the UK.

  • The US (46%), Germany (38%) and France (36%) identified as top individual country markets for small exporters and importers over next three years.
  • The EU Single Market and Customs Union is the most important trading bloc for current small exporters (62%) and importers (55%), compared to the USMCA (48% and 33%) and CPTPP (45% and 25%) 
  • All future Free Trade Agreements must include a SME chapter and a dedicated SME committee to be set up including private sector representation and must endeavour to reduce non-tariff barriers

With the UK set to embark on a new era of global trade negotiations for the first time in living memory, the importance of minimising friction in trade and having zero tariffs and quotas is more critical than ever to small businesses across the UK.

A major new report from the Federation of Small Businesses and the UK Trade Policy Observatory at the University of Sussex has highlighted what small businesses need to capitalise upon from Free Trade Agreements (FTAs).

The research involved a comprehensive review of recent major trade agreements and identifies best practice for provisions in Free Trade Agreements that will help SMEs achieve their trade ambitions. These range from supporting e-commerce, protecting intellectual property rights through robust enforcement, and supporting trade facilitation – particularly with regard to customs procedures. Trade facilitation is critical to SMEs because it reduces paperwork and transport costs and delays. 

Small businesses’ share of global trade lags behind that of our domestic economies. A key issue will be tackling the low use of preferences in FTAs by SMEs. For example, the compliance costs of stringent rules of origin can mean small businesses choose not to take advantage of preferential terms of trade within an FTA.

Understanding the extent and the nature of, often fixed cost, non-tariff barriers that have a disproportionate impact on small traders (whether in relation to different technical standards, licensing procedures and certification, complex customs procedures, lack of intellectual property rights enforcement) is essential. FTAs should be configured to make it much easier for SMEs to take advantage of the tariff preferences they offer.

Meanwhile 62% of small business exporters and 55% of small importers, identify the EU as their most important trading bloc, ahead of the new United States, Mexico and Canada (USMCA) and the already in force Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The US comes out as the most important individual country market for small firms hoping to export over the next three years with 46% selecting the country, ahead of 38% who chose Germany.

The report calls for all future FTAs to establish a dedicated SME committee which includes private sector representation. This committee should have a meaningful say in the key areas that will affect small firms whether that is e-commerce or trade facilitation.

It is essential that future FTAs ensure no customs levies are placed on electronic transmissions and prevent discrimination against digital products from other parties. Facilitating trade through introducing Single Window arrangements that allow importers and exporters to electronically complete import and export requirements at a single entry point would also be an important step in the right direction.

Finally, ensuring the enforcement of intellectual property protection is also of key importance to all small businesses.

Federation of Small Businesses (FSB) National Chair, Mike Cherry, said: “Small businesses are already the backbone of the UK’s domestic economy. For our country’s future prosperity, we now need to see their share of global start to catch up, by putting SMEs front and centre of all new trade agreements, especially as we depart the EU.

“It is essential that the needs of smaller firms are at the heart of future FTAs through a dedicated small business chapter in each agreement, and that the Government has the necessary architecture in place, to ensure the small business voice is heard loud and clear.

L. Alan Winters, Professor of Economics and Director of the UK Trade Policy Observatory, University of Sussex, said: “If the UK economy is to take advantage of the opportunities that are opening up, SMEs will be a central part of the picture. Making sure that trade agreements cater to their needs should be a top priority for Government”.

About FSB

As experts in business, FSB offers members a wide range of vital business services, including advice, financial expertise, support and a powerful voice in Government. Its aim is to help smaller businesses achieve their ambitions. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy.

About the UK Trade Policy Observatory: The UK Trade Policy Observatory (UKTPO), a partnership between the University of Sussex and Chatham House, is an independent expert group that initiates, comments on and analyses trade policy proposals for the UK and trains British policy makers, negotiators and other interested parties through tailored training packages. Created in June 2016, the UKTPO is committed to engaging with a wide variety of stakeholders to ensure that the UK’s international trading environment is reconstructed in a manner that benefits all in Britain and is fair to Britain, the EU and the world.

About the University of Sussex: The University of Sussex was the first of the new wave of UK universities founded in the 1960s, receiving its Royal Charter in August 1961. It is among the leading research universities in the UK, with 98 per cent of its research rated as world leading, internationally excellent or internationally recognised (REF 2014).

About FSB

As the UK’s largest business support group, FSB is the voice of the UK’s small businesses and the self-employed. Established over 40 years ago to help its members succeed in business, FSB is a non-profit making and non-party political organisation that’s led by its members, for its members. As the UK’s leading business campaigner, FSB is focused on delivering change which supports smaller businesses to grow and succeed.

FSB offers members a wide range of vital business services, including access to finance, business banking, legal advice and support along with a powerful voice in Government. Each year FSB also runs the UK’s Celebrating Small Business Awards. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy and on Instagram @fsb_uk.

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